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PROTOCOL
BETWEEN THE GOVERNMENT OF THE REPUBLIC OF LATVIA AND THE SWISS
FEDERAL COUNCIL AMENDING THE CONVENTION OF 31 JANUARY 2002
BETWEEN THE GOVERNMENT OF THE REPUBLIC OF LATVIA AND THE SWISS
FEDERAL COUNCIL FOR THE AVOIDANCE OF DOUBLE TAXATION WITH RESPECT
TO TAXES ON INCOME AND ON CAPITAL
The Government of the Republic of Latvia
and
The Swiss Federal Council
Desiring to conclude a Protocol to amend the Convention of 31 January 2002 between the Government of the Republic of Latvia and the Swiss Federal Council for the Avoidance of Double Taxation with respect to Taxes on Income and on Capital (hereinafter referred to as "the Convention"),
Have agreed as follows:
ARTICLE I
1. The title of the Convention shall be deleted and replaced by the following title:
"CONVENTION BETWEEN THE GOVERNMENT OF THE REPUBLIC OF LATVIA AND THE SWISS FEDERAL COUNCIL FOR THE AVOIDANCE OF DOUBLE TAXATION WITH RESPECT TO TAXES ON INCOME AND ON CAPITAL AND THE PREVENTION OF TAX EVASION AND AVOIDANCE"
2. The preamble shall be deleted and replaced by the following preamble:
"THE GOVERNMENT OF THE REPUBLIC OF LATVIA
AND
THE SWISS FEDERAL COUNCIL
DESIRING to further develop their economic relationship and to enhance their cooperation in tax matters,
INTENDING to conclude a Convention for the elimination of double taxation with respect to taxes on income and on capital without creating opportunities for non-taxation or reduced taxation through tax evasion or avoidance (including through treaty-shopping arrangements aimed at obtaining reliefs provided in this Convention for the indirect benefit of residents of third States)"
ARTICLE II
Subparagraph b) of paragraph 1 of Article 3 (General definitions) of the Convention shall be deleted and replaced by the following subparagraph:
"b) the term "Switzerland" means the territory of the Swiss Confederation as defined by its laws in accordance with international law;"
ARTICLE III
Clause (ii) of subparagraph h) of paragraph 1 of Article 3 (General definitions) of the Convention shall be deleted and replaced by the following clause:
"(ii) in Switzerland, the Head of the Federal Department of Finance or his authorised representative;"
ARTICLE IV
The following subparagraph j) shall be added to paragraph 1 of Article 3 (General definitions) of the Convention:
"j) the term "pension fund" means any plan, scheme, fund, foundation, trust or other arrangement established in a Contracting State which is:
(i) regulated by and generally exempt from income taxation in that State; and
(ii) operated principally to administer or provide pension or retirement benefits or to earn income for the benefit of one or more such funds."
ARTICLE V
Article 10 (Dividends) of the Convention shall be deleted and replaced by the following Article:
"Article 10
Dividends
1. Dividends paid by a company which is a resident of a Contracting State to a resident of the other Contracting State may be taxed in that other State.
2. However, such dividends may also be taxed in the Contracting State of which the company paying the dividends is a resident and according to the laws of that State, but if the beneficial owner of the dividends is a resident of the other Contracting State, the tax so charged shall not exceed 15 per cent of the gross amount of the dividends.
3. Notwithstanding the provisions of paragraph 2, the Contracting State of which the company is a resident shall exempt from tax dividends paid by that company, if the beneficial owner of the dividends is:
a) a company (other than a partnership) which is resident of the other Contracting State which holds directly at least 10 per cent of the capital in the company paying the dividends for at least one year prior to the payment of the dividend; or
b) a pension fund; or
c) the central bank of the other State.
4. Paragraphs 2 and 3 shall not affect the taxation of the company in respect of the profits out of which the dividends are paid.
5. The term "dividends" as used in this Article means income from shares or other rights, not being debt-claims, participating in profits, as well as income from other rights which is subjected to the same taxation treatment as income from shares by the laws of the State of which the company making the distribution is a resident.
6. The provisions of paragraphs 1, 2 and 3 shall not apply if the beneficial owner of the dividends, being a resident of a Contracting State, carries on business in the other Contracting State of which the company paying the dividends is a resident, through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the holding in respect of which the dividends are paid is effectively connected with such permanent establishment or fixed base. In such case the provisions of Article 7 or Article 14, as the case may be, shall apply.
7. Where a company which is a resident of a Contracting State derives profits or income from the other Contracting State, that other State may not impose any tax on the dividends paid by the company, except insofar as such dividends are paid to a resident of that other State or insofar as the holding in respect of which the dividends are paid is effectively connected with a permanent establishment or a fixed base situated in that other State, nor subject the company's undistributed profits to a tax on the company's undistributed profits, even if the dividends paid or the undistributed profits consist wholly or partly of profits or income arising in such other State."
ARTICLE VI
1. Paragraph 2 of Article 11 (Interest) of the Convention shall be deleted and replaced by the following paragraph:
"2. However, such interest may also be taxed in the Contracting State in which it arises and according to the laws of that State, but if the beneficial owner of the interest is a resident of the other Contracting State, the tax so charged shall not exceed:
a) 0 per cent of the gross amount of the interest, if the interest is paid by a company that is a resident of a Contracting State to a company (other than a partnership) that is a resident of the other Contracting State and is the beneficial owner of the interest;
b) 10 per cent of the gross amount of the interest in all other cases."
2. The following subparagraphs e) and f) shall be added to paragraph 3 of Article 11 (Interest) of the Convention:
"e) interest arising in a Contracting State and paid to a pension fund of the other Contracting State who is the beneficial owner thereof shall be taxable only in that other State;
f) interest arising in a Contracting State and paid to a resident of the other Contracting State who is the beneficial owner thereof shall be taxable only in that other State to the extent that such interest is paid on any loan of whatever kind granted by a bank."
ARTICLE VII
Paragraph 2 of Article 12 (Royalties) of the Convention shall be deleted and replaced by the following paragraph:
"2. However, such royalties may also be taxed in the Contracting State in which they arise and according to the laws of that State, but if the beneficial owner of the royalties is a resident of the other Contracting State, the tax so charged shall not exceed:
a) 0 per cent of the gross amount of the royalties, if the royalties are paid by a company that is a resident of a Contracting State to a company (other than a partnership) that is a resident of the other Contracting State and is the beneficial owner of the royalties;
b) 5 per cent of the gross amount of the royalties in all other cases."
ARTICLE VIII
Paragraph 3 of Article 17 (Artistes and Sportsmen) of the Convention shall be deleted and replaced by the following paragraph:
"3. Paragraphs 1 and 2 shall not apply to income from activities performed in a Contracting State by entertainers or sportsmen if the activities of the entertainer or sportsman are funded, directly or indirectly, wholly or mainly from public funds of the other Contracting State, a political subdivision or a local authority thereof. In such a case, the income shall be taxable only in the Contracting State of which the entertainer or sportsman is a resident."
ARTICLE IX
The following Article 22a (Entitlement to benefits) shall be added to the Convention:
"Article 22a
Entitlement to benefits
1. Notwithstanding the other provisions of this Convention, a benefit under this Convention shall not be granted in respect of an item of income or capital if it is reasonable to conclude, having regard to all relevant facts and circumstances, that obtaining that benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit, unless it is established that granting that benefit in these circumstances would be in accordance with the object and purpose of the relevant provisions of this Convention.
2. Where a benefit under this Convention is denied to a person under paragraph 1, the competent authority of the Contracting State that would otherwise have granted this benefit shall nevertheless treat that person as being entitled to this benefit, or to different benefits with respect to a specific item of income or capital, if such competent authority, upon request from that person and after consideration of the relevant facts and circumstances, determines that such benefits would have been granted to that person, or to another person, in the absence of the transaction or arrangement referred to in paragraph 1. The competent authority of the Contracting State to which the request has been made will consult with the competent authority of the other State before rejecting a request made under this paragraph by a resident of that other State."
ARTICLE X
Subparagraph a) of paragraph 2 of Article 23 (Elimination of double taxation) shall be deleted and replaced by the following subparagraph:
"a) Where a resident of Switzerland derives income or owns capital which, in accordance with the provisions of this Convention, may be taxed in Latvia, Switzerland shall, subject to the provisions of subparagraph b), exempt such income or capital from tax but may, in calculating tax on the remaining income or capital of that resident, apply the rate of tax which would have been applicable if the exempted income or capital had not been so exempted. However, such exemption shall apply to gains referred to in paragraph 4 of Article 13 only if actual taxation of such gains in Latvia is demonstrated."
ARTICLE XI
The following paragraphs shall be added to Article 25 (Mutual agreement procedure) of the Convention:
"5. Where,
a) under paragraph 1, a person has presented a case to the competent authority of a Contracting State on the basis that the actions of one or both of the Contracting States have resulted for that person in taxation not in accordance with the provisions of this Convention, and
b) the competent authorities are unable to reach an agreement to resolve that case pursuant to paragraph 2 within three years from the presentation of the case to the competent authority of the other Contracting State,
any unresolved issues arising from the case shall be submitted to arbitration if the person so requests. These unresolved issues shall not, however, be submitted to arbitration if a decision on these issues has already been rendered by a court or administrative tribunal of either State. Unless a person directly affected by the case does not accept the mutual agreement that implements the arbitration decision or the competent authorities and the persons directly affected by the case agree on a different solution within six months after the decision has been communicated to them, the arbitration decision shall be binding on both States and shall be implemented notwithstanding any time limits in the domestic laws of these States. The competent authorities of the Contracting States shall by mutual agreement settle the mode of application of this paragraph.
6. The Contracting States may release to the arbitration board, established under the provisions of paragraph 5, such information as is necessary for carrying out the arbitration procedure. The members of the arbitration board shall be subject to the limitations of disclosure described in paragraph 2 of Article 26 with respect to the information so released."
ARTICLE XII
Article 26 (Exchange of information) of the Convention shall be deleted and replaced by the following Article:
"Article 26
Exchange of information
1. The competent authorities of the Contracting States shall exchange such information as is foreseeably relevant for carrying out the provisions of this Convention or to the administration or enforcement of the domestic laws concerning taxes of every kind and description imposed on behalf of the Contracting States, or their political subdivisions or local authorities, insofar as the taxation thereunder is not contrary to the Convention. The exchange of information is not restricted by Articles 1 and 2.
2. Any information received under paragraph 1 by a Contracting State shall be treated as secret in the same manner as information obtained under the domestic laws of that State and shall be disclosed only to persons or authorities (including courts and administrative bodies) concerned with the assessment or collection of, the enforcement or prosecution in respect of, or the determination of appeals in relation to the taxes referred to in paragraph 1. Such persons or authorities shall use the information only for such purposes. They may disclose the information in public court proceedings or in judicial decisions. Notwithstanding the foregoing, information received by a Contracting State may be used for other purposes when such information may be used for such other purposes under the laws of both States and the competent authority of the supplying State authorises such use.
3. In no case shall the provisions of paragraphs 1 and 2 be construed so as to impose on a Contracting State the obligation:
a) to carry out administrative measures at variance with the laws and administrative practice of that or of the other Contracting State;
b) to supply information which is not obtainable under the laws or in the normal course of the administration of that or of the other Contracting State;
c) to supply information which would disclose any trade, business, industrial, commercial or professional secret or trade process, or information the disclosure of which would be contrary to public policy (ordre public).
4. If information is requested by a Contracting State in accordance with this Article, the other Contracting State shall use its information gathering measures to obtain the requested information, even though that other State may not need such information for its own tax purposes. The obligation contained in the preceding sentence is subject to the limitations of paragraph 3 but in no case shall such limitations be construed to permit a Contracting State to decline to supply information solely because it has no domestic interest in such information.
5. In no case shall the provisions of paragraph 3 be construed to permit a Contracting State to decline to supply information solely because the information is held by a bank, other financial institution, nominee or person acting in an agency or a fiduciary capacity or because it relates to ownership interests in a person."
ARTICLE XIII
1. The Title of the Protocol shall be deleted and replaced by the following Title of the Protocol:
"PROTOCOL
With respect to the Convention concluded between the Government of the Republic of Latvia and the Swiss Federal Council for the avoidance of double taxation with respect to taxes on income and on capital and the prevention of tax evasion and avoidance, the undersigned have agreed that the following provisions shall form an integral part of the Convention."
2. The following new paragraph 2 shall be added to the Protocol to the Convention:
"2. ad Article 3 paragraph 1 j)
It is understood that the term "pension fund" includes the following and any identical or substantially similar funds which are established pursuant to legislation introduced after the date of signature of this Protocol:
a) in Latvia, any pension fund covered by:
(i) the Law on State Pensions, of 2 November 1995;
(ii) the Law On Private Pension Funds, of 5 June 1997;
b) in Switzerland, any pension fund covered by:
(i) the Federal Act on old age and survivors' insurance, of 20 December 1946;
(ii) the Federal Act on disabled persons' insurance of 19 June 1959;
(iii) the Federal Act on supplementary pensions in respect of old age, survivors' and disabled persons' insurance of 6 October 2006;
(iv) the Federal Act on income compensation allowances in case of service and in case of maternity of 25 September 1952;
(v) the Federal Act on old age, survivors' and disabled persons' insurance payable in respect of employment or self-employment of 25 June 1982, including the non-registered pension funds which offer occupational pension plans and the pension funds which offer individual recognised pension plans comparable with occupational pension plans."
3. The following new paragraph 3 shall be added to the Protocol to the Convention
"3. ad Article 4 paragraph 1
In respect of paragraph 1 of Article 4, it is understood that the term "resident of a Contracting State" includes in particular:
a) a pension fund established in that State; and
b) an organisation that is established and is operated for religious, charitable, scientific, cultural, sporting, or educational purposes and that is a resident of that State according to its laws, notwithstanding that all or part of its income or gains may be exempt from tax under the domestic law of that State."
4. Existing paragraphs 2, 3 and 4 of the Protocol to the Convention shall be renumbered accordingly paragraphs 4, 5 and 6.
5. The following new paragraph 7 shall be added to the Protocol to the Convention:
"7. ad Article 10 paragraph 2 and paragraph 3
Where the minimum holding period laid down in subparagraph a) of paragraph 3 of Article 10 was not met at the time of the payment of the dividend and, therefore, the tax stipulated in paragraph 2 of Article 10 was withheld at the moment of the payment, and the condition of the minimum holding period is met subsequently, then the beneficial owner of the dividend shall be entitled to a refund of the tax withheld."
6. Existing paragraph 7 of the Protocol to the Convention shall be deleted.
7. Existing paragraph 5 of the Protocol to the Convention shall be renumbered paragraph 8.
8. The following new paragraph 9 shall be added to the Protocol to the Convention:
"9. ad. Article 11 paragraph 3 f)
It is understood that the term "bank" means a bank regulated under the law of the other Contracting State."
9. Existing paragraph 6 of the Protocol to the Convention shall be renumbered paragraph 10.
10. The following new paragraph 11 shall be added to the Protocol to the Convention:
"11. ad Articles 18 and 24
As regards Article 18 and Article 24 contributions to a pension fund of a Contracting State that are made by or on behalf of an individual who renders services in the other Contracting State shall, for the purposes of determining the individual's tax payable and the profits of an enterprise which may be taxed in that State, be treated in that State in the same way and subject to the same conditions and limitations as contributions made to a pension fund in that Contracting State, provided that the individual was not a resident of that State, and was participating in the pension fund, immediately before beginning to provide services in that State."
11. The following new paragraph 12 shall be added to the Protocol to the Convention:
"12. ad Article 26
a) It is understood that an exchange of information will only be requested once the requesting Contracting State has exhausted all regular sources of information available under the internal taxation procedure.
b) It is understood that the tax authorities of the requesting State shall provide the following information to the tax authorities of the requested State when making a request for information under Article 26:
(i) the identity of the person under examination or investigation;
(ii) the period of time for which the information is requested;
(iii) a statement of the information sought including its nature and the form in which the requesting State wishes to receive the information from the requested State;
(iv) the tax purpose for which the information is sought;
(v) to the extent known, the name and address of any person believed to be in possession of the requested information.
c) It is understood that the reference to "foreseeable relevance" is intended to provide for exchange of information in tax matters to the widest possible extent and, at the same time, to clarify that the Contracting States are not at liberty to engage in "fishing expeditions" or to request information that is unlikely to be relevant to the tax affairs of a given taxpayer. While subparagraph b) contains important procedural requirements that are intended to ensure that fishing expeditions do not occur, clauses (i) through (v) of subparagraph b) nevertheless are not to be interpreted in a way to frustrate effective exchange of information.
d) It is understood that Article 26 does not require the Contracting States to exchange information on an automatic or a spontaneous basis.
e) It is understood that in case of an exchange of information, the administrative procedural rules regarding taxpayers' rights provided for in the requested Contracting State remain applicable. It is further understood that these provisions aim at guaranteeing the taxpayer a fair procedure and not at preventing or unduly delaying the exchange of information process."
ARTICLE XIV
1. Each Contracting State shall notify to the other, through diplomatic channels, the completion of the procedures required by its law for the bringing into force of this Protocol. The Protocol shall enter into force on the date on which the later of those notifications has been received.
2. The provisions of the Protocol shall have effect:
a) in respect of taxes withheld at source on amounts paid or credited on or after the first day of January of the calendar year next following the entry into force of the Protocol;
b) in respect of other taxes for taxation years beginning on or after the first day of January of the calendar year next following the entry into force of the Protocol;
c) in respect to Article 25 paragraphs 5 and 6, to mutual agreement procedures that are:
(i) pending between the competent authorities of the Contracting States at the entry into force of the Protocol (in such cases the three year period under subparagraph b) of paragraph 5 begins with the entry into force of this Protocol), or
(ii) initiated after that date;
d) in respect to Article 26, to information that relates to fiscal years beginning on or after the first day of January of the calendar year next following the entry into force of the Protocol.
In witness whereof the undersigned, duly authorized thereto, have signed this Protocol.
Done in duplicate at Riga this 2nd day of November, 2016 in the Latvian, German and English languages, all texts being equally authentic. In the case of divergence of interpretation the English text shall prevail.
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the Republic of Latvia Minister of Finance |
Ambassador of Switzerland to Latvia |
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Dana Reizniece-Ozola |
Markus Niklaus Paul Dutly |
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